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Death of a salesman

The suits are loud and the hard sell never stops until customers open their wallets. Such is the stereotype of the second-hand car salesman (always a man) in the Western world. It is an image stuck firmly in the 1970s, when check and plaid ruled supreme.

In China the sales patter is also unrelenting but there are at least two differences to the stereotypes from overseas. Firstly, the salesperson is younger and more likely to be bespectacled (if they look like a computer geek, that’s because they probably are). And secondly, the target market is slightly different. Used car salesmen in the West preyed on passing retail trade. The Chinese version is chasing private equity cash – and a lot of it.

China’s second-hand car market is following a very familiar pattern, whereby lots of people have the same idea at the same time – and it then becomes a race to build market share and squeeze out competitors.

Something similar happened in bike-sharing and ride-hailing. The cash burn is fierce and the net results are usually the same: consolidation in the sector.

Few doubt the potential for second-hand car sales, even though overall ownership could be capped in the longer run by the rise of ride-sharing and self-driving vehicles.

China is still playing catch-up on countries like the US, where sales of second-hand cars are twice those of new models. In China the reverse is true, but changing fast. In 2000, a total of 250,000 used cars were sold. In 2017, the figure was 12.4 million compared to 28.88 million new cars.

Last year, used car sales grew 20%, much faster than sales of new cars, and the pace is likely to accelerate as the government removes restrictions on inter-provincial sales. In 2015, it opened up the market, aside from in the 15 largest cities, which had to stick to sales in their own provinces. Some provincial governments have tried to protect their local players by raising environmental standards for second-hand cars coming in from other regions. But a thriving sector has developed, with Ningbo currently ranking as China’s most active second-hand market.

Ningbo’s proximity to Shanghai means there is a steady supply of quality cars for purchase, allowing residents to trade up to better vehicles without buying new. The old stigma of owning a second-hand car seems to have largely disappeared.

Concerns about sales integrity linger, however, with fears that older cars are being presented as fresher vehicles. One answer is to buy online where companies like RenRenChe (which mean ‘everyone’s car’), Chehaoduo (‘lots of cars’), Uxin (‘excellent credit’) and Souche (‘search for car’) offer certification services and money-back guarantees.

According to the Guangzhou-based consultancy Piston Intelligence, these marketplaces have built a combined 15% market share after an advertising blitz. Traditional car manufacturers control a further 5% of sales, but the remaining 80% belongs to independent dealers, whose share looks ripe for the picking.

Of course, the online platforms are still bringing business to the bricks-and-mortar dealerships by helping people to find the cars that they want and making the pricing more transparent. The larger platforms are moving into auto loans as well in a bid to become more comprehensive service providers.

In the longer run, that puts smaller dealers at a disadvantage as the online sites will control most of the access to potential customers.

Keeping up with the online platforms is already bewildering. But one consistent link is Tencent, which has invested in RenRenChe, Chehaoduo, Uxin and TTpai.com.

Tencent led Chehaoduo’s $818 million fundraising that closed last month. The unicorn, which was founded in 2014, is a subsidiary of New York-listed 58.com. To date, it has raised $1.6 billion from its fundraising and also counts Jack Ma’s Yufeng Capital as an investor.

One of Chehaoduo’s rivals is RenRenChe, also founded in 2014. Alongside Tencent, another backer is Xiaomi’s Lei Jun, via his private equity vehicle, Shunwei Capital. Last September Didi Chuxing invested via a $200 million placement and it is promising to purchase a million cars via RenRenChe and allocate them to its drivers via rental and leasing agreements. The deal has driven up listings on RenRenChe’s site fivefold, its founder Li Jian told the South China Morning Post.

And then there is Uxin, which has Baidu and Tencent as backers, plus a roster of private equity investors including Hillhouse Capital and Warburg Pincus. It is planning an IPO in the US later this year.

Alibaba, the final member of the BAT troika, has invested in Souche, which was founded in its hometown of Hangzhou in 2012. Ant Financial put in $100 million in 2016, while Alibaba led the most recent $335 million round last November.

Rounding out the pack is: TTpai.com, which numbers Tencent and NYSE-listed Bitauto as shareholders; plus Chezhibao, which is based in Jiangsu and recently raised $64 million; and Che300, in which both Sequoia Capital and SAIC have invested.

At the moment all of these firms are trading or auctioning cars. But it cannot be long before a few of them are putting themselves up for sale too.

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